David Henderson questions my charge that economists who, in their support of minimum-wage legislation, allege widespread and profit-laden monopsony power in the market for low-skilled workers should themselves start businesses to exploit the profit opportunities implied by such monopsony power.
David’s questioning is understandable and appropriate. But I nevertheless stand by my charge.
It’s true that not every economist who alleges that employers of low-skilled workers have monopsony power is himself or herself equipped actually to start businesses that will profit from the ability to employ (at slightly higher wages) these exploited workers. Indeed, most academics who make such allegations are like me: utterly incompetent at attempting to do anything practical. Academics such as myself – and I believe myself to be representative of the people who, in modern-day America, find protection and privileged refuge in the academy – are a generally impractical, pathetic, and worthless lot incapable of creating much real value for our fellow human beings. (UPDATE: There are revealing exceptions. See the comments on David’s post by Methinks.)
And yet, if the standard charge of monopsony power is accurate – that is, if it is really the case that millions of low-skilled workers in America are currently being paid below the marginal values of what they produce per hour for their employers – real profit opportunities exist. It’s reasonable to expect that the very people (academic economists) who are the first to identify and describe these profit opportunities would be among the first to try to personally gain by somehow taking advantage of this lucrative discovery.
When writing the post that David challenges, I had in mind Paul Krugman, David Card, and Alan Krueger. These economists are very smart; they all have very high I.Q.s (much, much higher than mine). And, far more importantly, each one of these Ivy League economists surely has – or can easily establish – splendid and mutually advantageous connections with can-do entrepreneurs. If these economists’ allegations of widespread, profit-laden monopsony power are correct, they each should be eager to try to persuade entrepreneurs and investors more worldly and business-savvy than they are to exploit this profit opportunity.
The details of the specific form(s) of the equity stakes that Profs. Krugman, Card, and Krueger would negotiate in order to share gains with the actual real-world entrepreneurs whom they persuade to exploit the opportunities to profit from setting up businesses that hire the legions of underpaid workers are not important. But surely it’s not too much to expect that scholars so brilliant, so well-connected, and so certain as these scholars seem to be of the widespread reality of underpaid workers will be able to persuade some practical and able men or women with decent business sense to exploit this profit opportunity.
At the very least, if the likes of Profs. Krugman, Card, and Krueger prove to be inept at persuading profit-hungry real-world entrepreneurs to take advantage of the vast pool of underpaid workers that these scholars allege to exist, these scholars have no business trying to persuade politicians to act on an alleged reality that men and women of practical affairs – staking their own funds as entrepreneurs and investors – refuse to act upon.